This
article is about an automated valuation model for commercial real
estate. ComValAVM is an automated valuation model (AVM) developed by
Eric Reenstierna Associates. Automated valuation models have been in
use in the residential field for a number of years. They are
controversial, in that they can be used as substitutes for appraisals
made by human appraisers. Automated valuation for commercial property
is in its infancy. And, in the commercial field, an AVM is not so much
a substitute as it is an appraiser's tool, like any of the other tools
in an appraiser's belt - Argus, the HP12C, or Google. ComValAVM is
intended for use by appraisers, who can incorporate the output of the
AVM into their own work in order to save time in quick analyses. Users
can access ComValAVM online at http://www.comvalavm.com (or, if you are
reading this article online, click on the logo at the end of this
page). Free of charge, the system can be used to make an automated
valuation of an apartment, office, retail, or industrial property.

ComValAVM is an outgrowth of earlier Web-based work done by this office.

In 1996, Eric Reenstierna Associates founded a Web site, WebAppraiser.
The site served appraisers, providing links to appraisal organizations,
data sources, and vendors. Two of its innovations were sophisticated.
One was the "Research Exchange." Here, an appraiser who was engaged in
the valuation of some special-use property for which market data
collection is difficult - say, an asphalt plant - could click on
"asphalt plants" and find a list of other appraisers who had gone to
the Research Exchange looking for asphalt plant data in the past. The
appraiser could contact any of these with a request to share data, and
expect to find someone who had done much of the groundwork. The new
appraiser's name then went to the top of the list, available to whoever
came along next. A similar system is in place today at a different
company, Appraisal Data Connection.

The second was Municipal Descriptions. Here, the user could identify a
city or town anywhere in the U.S. and obtain a description, in text,
that compared that town to its state or metropolitan area. WebAppraiser
generated the text from statistical information in the U.S. Census. The
description was instantaneous and supplied text concerning median
dwelling value, per capita income, employment, and other important
characteristics.

WebAppraiser taught us some of the unique capabilities of the Web and
taught us about automation. It also taught us about profit. We learned
that it is one thing to generate user traffic - which the site did -
but something else to generate cash flow. As Yogi Berra might say, "We
ran a very successful business, except that it didn't make any money."

ComValAVM went on the market in 2002. The premise of ComValAVM is that
a certain percentage of appraisal work consists largely of applying a
standard formula concerning vacancy, expenses, and a capitalization
rate to numbers that are readily available to an appraiser on the
property's rent roll. This is work that requires an appraiser to review
the sensibility of the data. Because it is simple and formulaic, it is
capable of mechanization.

At ComValAVM, the appraiser takes a ten-minute online survey. At
completion of the survey, the appraiser receives an online report that
provides as many as nine different analyses through the Income Approach
and others, together with a value conclusion. The system is suitable
for use with commercial real estate in any of the major sectors
anywhere in the U.S.

ComValAVM competes with AVMs from much larger companies. What
distinguishes ComValAVM from competitors is the method of valuation it
employs. Competitors' valuation models for the most part treat
commercial real estate like residential real estate and rely on
analysis of comparable sales. But the value of commercial real estate
is found more often through rental income. ComValAVM is based on rental
income analysis. ComValAVM applies the methods that are most in favor
with appraisers and so, in our view, for appraisers is the most
suitable tool.

The Reenstierna Associates Report is published as
a service to the clients of Eric Reenstierna Associates and other real
estate professionals. The views expressed are those of the articles'
authors and do not necessarily reflect those of other members of the
organization. Copyright 2004. All rights reserved.